Five Things You Need to Know: Bailout Passes, Stocks Limp
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
How can this be? How can the passage of the Bailout Bill find stocks limping awkwardly into the close? Wasn't this supposed to be our finest hour? The desperate resolution to the year-long crisis? Well, the reality we have tried to reveal here in Minyanville is that the Bailout simply will not work.
Realizing it is not enough, by Monday morning expect some additional Federal Reserve action, perhaps a rate cut, maybe even a coordinated move between the Fed and European and Asian central banks. Even so, the market is too big, the debt crisis too large, for central banks to control.
This is evidenced by the action (and the lack of it) that continues to take place behind the back of the equities market in credit markets. Even upon passage, few corporate bonds are trading, and those that do are trading at levels that indicate a fear that there will be either massive bankruptcies - even with the passage of the bill - or that the holders of the paper are in serious trouble and in desperate need of capital.
The credit markets have spoken. And they are saying - no, they have been saying all along - that the $700 billion Bailout Bill is nothing but a gnat attacking a buffalo. There has been an ongoing disconnect between stocks and credit markets for months now and even the action on Monday did little to correct it.
Risk in equities remains high on both sides. You can't short stocks because if it is not already illegal, it is too risky to try and match wits (and capital) against the SEC, Treasury, Federal Reserve and Federal Government. No one really knows what desperate rule, mandate, acronym or Fed action will cross the wire next, temporarily crushing short sellers. Similarly, you can't buy stocks either, because doing so means you are essentially gambling on the success of the SEC, Treasury, Federal Reserve and Federal Government.
There is a facade of normalcy to the markets at this stage, a dangerous one. Because the markets are continuing to open at 9:30 a.m. and close at 4 p.m. like always, there is the deceptive sense that things are functioning. They are not.
This is an historic time, and a dangerous one. Decisions have been made in the past two weeks that will impact the functioning of markets in still unknown ways for the next 25 years.
Although unprecedented in magnitude, the TARP being proposed falls somewhere on the other side of both the Resolution Trust Corporation that was created to handle the Savings & Loan crisis in 1989 and the Reconstruction Finance Corporation created in 1932 to deal with massive bank failures and the inability to get credit into the economy.
How did markets respond to the Reconstruction Finance Corp. passage in 1932?
What about the RTC in 1989?
Keep in mind, the RTC came eight years into one of the the largest bull market in history. Know where the Dow and S&P 500 were eight years ago? 11,388 and 1255, respectively.
Meanwhile, there is only one thing necessary to understanding what is happening and it is this: no one at U.S. Banks, no one at the Federal Reserve and no one in politics can accept the reality that real estate assets in this country remain oversupplied, overpriced and overleveraged.
It is that simple.
TAF, TSLF, SuperSIV, TARP, none of that matters. No matter what acronym is created to disguise the fact that assets are overpriced, or what government intervention is created to prop up those asset prices, the market will inevitably overpower it. This time is not different. In fact, it is continuing to play out almost exactly as the Great Depression did. The bottom line is that despite the bailout, risk in owning stocks has increased, not decreased.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
Why are we loyal readers (especially the more bearish and nasty of us who are now bleating "I told you so") not hearing any "Oops, we were wrong. Sorry" from at least half a dozen writers there.
I think some mea culpas from you folks is in order. I mean, maybe some people were listening to some of you. You know, taking your advice with their money. Noting now from dark bars that we're at the abyss in highly purple language is not enough!
Walto
Because Depew, Harrison, Succo, Mr. Practical and many others have been talking about this very situation for in excess of two years, I have had my long term nest egg in cash since July 2007. Maybe you should expand your daily reading list on Minyanville.com. No malice intended here, I am just citing my own experience here, and am eternally grateful for the insight that has kept me from repeating my mistakes of 1987, and 2001.
I would venture to argue that it is more than real estate that is overvalued. Easy credit made everything look cheap, including stocks. Is GE at 11x tangible book value cheap? And that's after a 50% hair cut this year.
Time and price - well, I think the feds will do the easy thing, as they always do -- print more money... lots and lots of it. Want to keep the price of houses at $500,000? Cut a check for $250,000 and mail one to everybody in the USA. Viola!
Unintended consequences -- of course but they usually don't appear until after the next election.
He subsequently called the top in July 2007, and again the following October. Since then he's been wildly bearish and spot on. No one's perfect, but his long term Elliott Wave analysis is startlingly prescient.
In any case, the Minyanville writers have been relentless in their warnings of high risk and impending collapse, way out in front of the MSM who are just now starting to have an inkling that something very nasty is lurking out there.
I for one am grateful.
Minyan Matt
-Respect the price action but never defer to it..
-Discipline trumps conviction.
-Opportunities are made up easier than losses.
-Emotion is the enemy when trading.
-Zig when others Zag.
-Adapt your style to the market.
-Maximize your reward relative to your risk.
-Perception is reality in the marketplace.
-When unsure, trade "in between."
-Don't let your bad trades turn into investments.
-No approach is failsafe and any trader worth his or her salt has endured periods of pain.
Then to hear the CNBC 'sales staff' say that lack of liquidty is wrecking the economy 90 times an hour - it's worse than hearing our senators and reps using their recently acquired Wall speak to 'explain' the situation to all us stupid Main Streeters.
Anyway, good piece.
Saying it won't work every day since it was proposed:
http://www.minyanville.com/articles/Paulson-banks-US-bailout-treasury-TAF/index/a/19114
http://www.minyanville.com/articles/GS-C-citigroup-WB-ms-bailout/index/a/19237
http://www.minyanville.com/articles/GS-C-citigroup-WB-ms-bailout/index/a/19237
But.
If anybody would like me to link to a hundred or more Minyanville articles over the past six months the main point of which was to say basically "Everybody calm down; things aren't really that bad." I'd be happy to do so. And some of those pieces were from as recently as about four weeks ago. You can look it up.
The only writers I know that actually predicted a Great Depression-like crash for around this time over a year ago were single tax types like Fred Harrison and Fred Foldvary. Having concern about deflation isn't quite the same thing as predicting a near total collapse of the U.S. economy (which nearly everybody is doing now). There may have been others saying this, certainly, but if so, I missed them.
Anyhow, I don't want to annoy further, and as it's apparently considered bad form to disagree with anybody here, I'll slink away before any other loyal fans suggest a posse is in order.
Best,
W
John Succo hasn't written an article on this site in years -- the ones they've repeated this week were several years old. Minyan Peter and Mr. Practical have appeared very infrequently in the past year. Todd Harrison writes in riddles (maybe they're analogies) with a bearish slant, but confuses readers with his endless search for short term trading bottoms. Kevin Depew has generally hit the nail on the head, by focusing good writing on the big picture. By far the best predictor and chronicler of everything that has happened, is happening and will (!) happen is Prof. Bill Fleckenstein, but his work appears so infrequently on this site that Walter has probably never heard of him.
On an average day, 75% or more of the content on Minyanville for the past year was exactly what Walter says it was --- business as usual, stocks to buy or sell, Costco vs. Sears vs. Starbucks, how to improve your credit score, what I did at the beach with my kids last summer. Minyanville has at least one writer who thinks Mister Softee is just the name of an ice cream store -- so much for increasing financial literacy. In the past two months, Minyanville started running annoying ads for Washington Mutual -- no irony there. Got to keep the money flowing in, after all.
I submit that by inflating itself, Minyanville has debased its own currency. The new reader they crave has had a better than 75% chance of reading a "financial wisdom" or stock picking article that could just as easily have been written by Suze Orman or Anonymous Hack on any day in any year. They've read those articles, seen those ads, and then formed their opinions about Minyanville based on them. While Walter is wrong about our heroes, I think he might be right about Minyanville.
Just sayin'
Much in the same way, we all choose our favourite writers in line with our view of ... (market, life, the world?) It's called criterion.
As for being able to chose different opinions, I think it's called something like freedom of speech or something similar, I forget.
Wait, I've heard this somewhere before... I know! It's the official line after Irak's invasion: "OK, maybe we lied, but nowit's a little late for recrimination and complaining serves no purpose"
Take off your mask, Bush, you've been uncovered!!!
In return, I'd like to post my own indicator here... It's the new/old car indicator. It wasn't many years ago that the klunker cars were coughing and sputtering around on a pretty common basis. You could spot them because they were old, the paint was peeling, and a lot of them smoked. They were usually driven by young people who acquired them with minimum finances, or as hand-me downs from parents. Now, you don't see as many klunkers on the road as you used to. A few years ago and upon returning to civilization after being gone for a time, I noticed that the klunkers were missing from the streets. It was as though a giant street cleaner had gone through and sucked them up, missing only those few that were fortunate enough to be parked in a shop for repairs. I also noticed that young people were driving expensive cars, nice bright and shiny ones. Cars with fancy names and fancy price tags. When I was younger, young people couldn't afford cars like that. When I noticed this change, I thought "My, how times have changed. These days, anyone can afford a fancy car - except me!"
Well, I guess things hadn't changed that much at all. I suspect that all these new cars have been paid for with debt financed by banks to people who could not really afford them. And as people upgraded to brand new cars, they passed the not quite as new, and not quite as nice, down to someone else. I would suggest that the ratio of new cars to klunker cars is very high at this time. I sometimes miss the landscape of yesteryear, and think that as the economy changes back to a mean, the ratio of new cars to old cars will become lower, and we will see more klunker cars again.
There are a number of bullish/bearish sentiment indicators out there. I first read about them in one of Stan Weinstien's books. He said that he watched the covers of major magazines (like Newsweek and Businessweek). When things got so good or bad that special covers appeared, such as the one depicting a Bear tearing down the pillars of Wallstreet, he used it as an important indicator.
In appreciation and exchange for what has been given to me by other Minyannites, I am now offering my "new car/old car" economic indicator.
Yours,
I see much ads for branded hats and tee shirts and much less market insight.
I agree with John Mellon that "by inflating itself, Minyanville has debased its currency".
Again, not complaining against the ads, as I understand you have to make money, but the "signal to noise" ratio has deteriorated markedly lately, at least in my view.
As to Toddo Harrison's comments, I must confess that I am totally incapable of making any sense of what appears to me as cryptic statements. But maybe its just me and my lack of familiarity with Brooklyn colloquialism.
Finally, I still think that you guys are way too smart for Fox Business news....
Just my $0.02
I find myself openly questioning some of the advice given on the "Suzie Orman" financial side. The perspective is both somewhat urban and upper middle class. For instance, no one I know solves the problem of what do about summer daycare by sending their kid off to Europe. The "set up a trust fund for low income grown children" idea from a recent article appears to be typical piece of advice. Very little on the 'Ville directly addresses the bad money habits of low and middle income people.
I feel that David Ramsey, despite his somewhat "cultish" standing, does a much better job at telling a person with more typical finances how to actually build the wealth required to invest than anything I found at the 'Ville.
On the other hand, I was reading Mish Shedlock and a few others before I found they were conveniently here on the 'Ville. Kevin Depew, is a new find to me and the reason I'll continue to be here. I feel that he did a much better job of understanding the meaning of the bailout than most of commentators here.
Great time to buy or sell some options on the financials, or any stock for that matter.
I see someone mentioned the Elliot Wave.
My colleagues call that the Idiot Wave"
Making analysis based upon stars and the cosmos? LOL
(Just a stretch there, but c'mon.)
By the way
Take a look at this site
marketmoversnow
I bought his first options cd set and it was well worth the money.
Good luck longs (or shorts)
If you had purchased $1,000 of shares in Freddie Mac one year ago, those shares would be worth $26.50 today.
If you had purchased $1,000 of shares in AIG one year ago, those shares would be worth $55.00 today.
If you had purchased $1,000 of shares in Lehman Brothers one year ago, those shares would be worth $2.61 today.
But, if you had purchased $1,000 worth of beer one year ago, drank all the beer, then turned in the aluminum cans for a recycling refund, you would have about $214.00 today(in NY).
Based on the above facts, financial experts now feel the best current investment advice is to drink heavily & recycle.
This new retirement program is being called a 401-K(eg) Plan.
